The fate of the state assets between 1998 and 2001

The government has lacked a clear privatization policy since the summer of 1998. Retrospective analysis, based on official publications and press statements from the central asset management authority and conversations with other participants of the process, suggests that earlier trends have altered in many respects since the parliamentary elections in 1998. The assets of State Holding Company (SHC) have increased instead of decreasing. SHC has consumed rather than increased public funds and its main activity has become extra-budgetary redistribution of state revenues. The author assumes this does not derive from any comprehensive, secret plan. The strongly centralized decisions have been driven by short-term political interests, by creative interpretations of several experiments, and in some cases by constraints or by their absence. The events and their results in the field of state asset management reflect well the ideas and behavior patterns of the government, also applied in other economic and political areas.

Közgazdasági Szemle ? Economic Review, XLVIII. évf., 2001. September pp. 726 - 744.

Hungarian privatization is considered as a process which has been dominated by standard methods. Most of the firms were sold via public tenders, private placement or public offerings and state budget generated significant cash income from selling. A detailed analysis, however shows that the course of privatization has neither been direct nor uniform even in this country. Every conceivable approach occurred on the scene during the last decade, including free distribution to individuals and institutions or preferences to different types of buyers as well as loosely controlled movements and centralized governmental decisions.
The intention of this paper is to show some reasons behind these fluctuations. Privatization is regarded here as a learning process. Learning process not in a technical sense but rather a trial and error approach, an adjustment of all main actors (governments, enterprise management and potential new owners) led partially by constraints, partially by changing opportunities.

In: Successful Transitions, Political Factors of Progress in Post-socialist Countries, Jürgen Beyer, Jan Wielgohs, Helmut Wiesenthal eds., Nomos Verlagsgesellschaft, Baden-Baden 2001. 139-152.

How typical is the organisation of a network of "managerial capitalism" and ?recombinant property? in the large enterprise sector in Hungary? Based on the ownership structures and corporate governance methods of the top one hundred companies, the article argues that both models may be justified within a narrow sphere or in a particular sense. In a formal and legal sense the management is only a shareholder in exceptional instances, and its informal influence depends on the ownership type. Its power is determinative in the case of divided ownership and for some corporations owned by the state. The concept of inter-corporate ownership elaborated by David Stark is characteristic in the sense that the majority of the large enterprises are linked to a network, though these are mainly subsidiaries of multinational companies. This, however, is not a uniquely Hungarian or post socialist solution. There is a fundamental difference between Hungarian and foreign enterprises as owners at almost all levels of corporate management. It is not advisable, therefore, to treat the two groups as a single category within the conceptual framework of the "network".

Közgazdasági Szemle (Economic Review) July-August 2000, pp. 549-564

The phenomenon known as "spontaneous privatisation" is one of the most passionately disputed components in the history of Hungarian privatisation. Some economists and politicians consider the essence of the process to be the disintegration of state enterprises into a group of companies, whereas others regard it as the sale of firms or company sections based on managerial decisions. Most participants in public disputes use spontaneous privatisation as a term of abuse and as a synonym for the conversion of political into economic power or for the preservation of assets, i.e. wasting state assets. In line with this, evaluations are also radically different. At one pole, spontaneous privatisation is an indication of the companies? ability to adapt, but at the other it is equivalent to unlawful acquisition of advantage or even theft.
The basic preconditions for the transition that is unique to Central Eastern Europe in many respects were created by earlier Hungarian reforms. The series of steps taken is a good indication of the continuity and breaking points of the economic and political changes as an important cross section of the disintegration of a centrally planned economy. The question is whether this method could have been an alternative path to privatisation nowhere else followed. How do we evaluate this method of transition subsequently, ten years later? Richly illustrated with contemporary disputes and actual company cases, this book seeks answers to these questions.

ÁPV Rt., (State Privatisation and State Holding Company) "Számadás a talentumról" ("Giving account of the talent") series 1998

Restructuring and Privatization of Big Enterprises in Hungary

?Dinosaurs were huge animals?, a chief executive explained me in the early 80s before our extensive knowledge of paleontology was developed from the books of our children. ?If a rat started to chew their tail it took several years for the information to reach the dinosaurs? brain. Our big enterprises are just like dinosaurs? - he stated with self irony. Have these primordial creatures died out of the Hungarian economy? The crucial question of our research was how the political and economic turnover affected the Hungarian large scale industry. How has the organizational and ownership structure of the socialist big enterprises changed? How have their production structures, patterns of behavior and orientations changed? What enterprise strategies have proven to be successful? What has the role of the government been like in connection with big firms? In order to answer these questions we used a combination of economic and sociological methods, based on case studies and the processing the balance sheet data of 49 enterprises, which were considered as privileged, strategic firms under Socialism. First we will outline the main characteristics of the big enterprise group concerned, than have a look at the method and degree of organizational and ownership changes. In the last section the basic lines of disintegration, the elements and the constraints of disintegration will be presented.

Published by Perfekt-Pénzügykutató Rt. 1997 (in Hungarian)

Restructuring and privatization of large firms

What does systemic change mean for large scale Hungarian industry? How have the organizational and ownership structure of large socialist firms changed? How have their activities, behavior and orientation modified? What kind of firm strategies proved to be successful? What is the role of the state as an owner, regulator and market actor in shaping the fate of large firms? The research presented in the paper tries to find answers to the questions with by combining economic and sociological approaches. The fate of 49 large firms, considered as a special group of strategic enterprises in the planned economy, is analyzed by case studies and processing their balance sheet data.

Közgazdasági Szemle - Economic Review, XLIV. évf., 1997. January (31 - 41. O.), Study

According to general understanding, privatization in Central East Europe does not simply mean the transfer of individual firms from state hands to other proprietors, but it is the precondition and the main instrument of rebuilding the whole economic system. Thus, the task is not to fit in state owned enterprises into a functioning market but to create this new integration mechanism parallel with and by the mean of a wide-ranging change of ownership structure. One of the basic dilemmas of the transformation is, whether it is possible to build up the frameworks of a decentralized market mechanism applying a comprehensive, homogeneous privatization strategy, carried out by centralized governmental institutions. In other words: can privatization be designed?
Based on the Hungarian experience, in comparison with Czech-Slovakia and Poland, this paper will argue that all governments have tried to do so. Nevertheless, their attempts to design ownership changes have been successful at a different degree - not (only) in terms of privatized assets or enterprises but in terms of the impact of programs, guidelines and centralized decision making on the transformation of the proprietary structure. The degree of "design" will be characterized by the stability versus shifts of governmental privatization policies and the relationship between the programs declared and the empirical changes.

In: Institutional Design in New Democracies, A. Lijphart, C.H. Waisman eds., Westview Press, Boulder, Colorado, 1996. 177-194.

(Government's role in changing Hungary's ownership structure)

The paper discusses the shifts in Hungarian privatization strategies and in the role of the government in changing the ownership structure. Analyzing the forms of transformation, the goals and motivations of the participants (enterprises and government organizations) and the reasons for changing the main direction, it argues that the five years history of Hungarian privatization indicates the mixed and unstable character of the process. There has never been a uniform, homogeneous method of changing the ownership structure: market type techniques have been accompanied by central distribution of property.
The often changing governmental strategies, motivated predominantly by purely political considerations, show a clear tendency towards the re-establishment of centralized control of state organizations over the firms. The coming years can see an emergence of redistribution type solutions with highly dubious social and economic implications.

In: Strategic Choice and Path-dependency in Post-socialism, Jerzy Hausner, Bob Jessop, Klaus Nielsen eds., Edward Elgar, Brookfield 1995. pp. 287-308.

Politicians and analysts, businessmen and citizens generally agree that economic transformation should amount to market economy creation. Paradoxically enough, the gradual establishment of the basic institutions of the market, including private ownership, is contrasted by the signs of the reactivation of another integration mechanism, namely the redistribution. Following a temporary withdrawal in the late 1980s and early 1990s, the direct redistributive function of the state seems to have gained new vigor.

Acta Oeconomica, Vol.46.(1994)No.1-2. pp.63-78.

The Hungarian government introduced several preferential methods in the last years in order to accelerate privatization and to promote the creation of a wide, strong proprietary middle-class. The paper summarizes the empirical experiences with the first and most widespread privatization credit, the so called Existence Loan. It describes the key features and modification of the scheme, the role of the E-loan in the growth of private business and in the privatization process. Thereafter the different types of borrowers and the emerging ownership pattern are reviewed. Finally, the macro and micro economic effects of the E-loan are analyzed, together with the general preconditions supporting or obstructing the use of preferential credit facilities in changing the ownership structure.
The paper argues that some effects of the E-loan are undoubtedly favorable. It has supported the speeding up of privatization as well as the growth of private business through the expansion of existing organizations and especially the emergence of new ones. On the other hand, however, the E-loan scheme is a threat from the point of view of both the companies concerned and the economy as a whole. The problems with the E-loan concern three critical issues: the biased preference of privatization, separating this action from the general economic environment, the credit form of encouraging demand and the risk allocation in the economy.

Paper presented at the workshop "Output decline in Eastern Europe - prospects for recovery?" Laxemburg, November 1993